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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2008.
 or
 o
    
    Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission File No. 000-24172
 Southeastern Bank Financial Corporation
  Georgia
    
    58-2005097(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 3530 Wheeler Road, Augusta, Georgia 30909
 (Issuers telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer o
    
    Non-accelerated filer o*(do not check if a smaller reporting company)Accelerated filer þ
    
    Smaller reporting company o
 o þ




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##### 



SOUTHEASTERN BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
 PagePart IItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of September 30, 2008 and
December 31, 2007
    
    
    3Consolidated Statements of Income for the Three and Nine
Months ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part IIOther InformationItem 1. Legal Proceedings
    
    
    *Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    *Item 4. Submission of Matters to a Vote of Security Holders
    
    
    *Item 5. Other Information
    
    
    *Item 6. Exhibits
    
    
    30Signature
    
    
    31*     No information submitted under this captionExhibit 31.1Exhibit 31.2Exhibit 32.1
   1




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
 
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCash and due from banks
    
    $
    28,712
    
    
    $
    24,558Federal funds sold
    
    
    43,210
    
    
    
    Interest-bearing deposits in other banks
    
    
    500
    
    
    
    500Cash and cash equivalents
    
    
    72,422
    
    
    
    25,058Investment securitiesAvailable-for-sale
    
    
    240,916
    
    
    
    245,429Held-to-maturity, at cost (fair values of
$698 and $1,467, respectively)
    
    
    689
    
    
    
    1,435Loans held for sale
    
    
    15,187
    
    
    
    11,303Loans
    
    
    985,239
    
    
    
    871,440Less allowance for loan losses
    
    
    (13,516
    )
    
    
    (11,800
    )Loans, net
    
    
    971,723
    
    
    
    859,640Premises and equipment, net
    
    
    34,263
    
    
    
    32,612Accrued interest receivable
    
    
    6,436
    
    
    
    7,416Bank-owned life insurance
    
    
    17,209
    
    
    
    16,660Restricted equity securities
    
    
    6,595
    
    
    
    5,060Other assets
    
    
    12,690
    
    
    
    8,367$
    1,378,130
    
    
    $
    1,212,980Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    109,742
    
    
    $
    101,272Interest-bearing:NOW accounts
    
    
    151,886
    
    
    
    132,186Savings
    
    
    280,699
    
    
    
    289,731Money management accounts
    
    
    70,237
    
    
    
    73,609Time deposits over $100,000
    
    
    366,536
    
    
    
    243,501Other time deposits
    
    
    146,685
    
    
    
    111,8671,125,785
    
    
    
    952,166Federal funds purchased and securities sold
under repurchase agreements
    
    
    48,607
    
    
    
    81,166Advances from Federal Home Loan Bank
    
    
    84,000
    
    
    
    59,000Other borrowed funds
    
    
    400
    
    
    
    500Accrued interest payable and other liabilities
    
    
    8,777
    
    
    
    10,390Subordinated debentures
    
    
    20,000
    
    
    
    20,000Total liabilities
    
    
    1,287,569
    
    
    
    1,123,222Stockholders equity:Common stock, $3.00 par value; 10,000,000 shares
authorized; 5,987,451 and 5,976,811 shares issued in
2008 and 2007, respectively; 5,987,169 and 5,967,536
shares outstanding in 2008 and 2007, respectively
    
    
    17,962
    
    
    
    16,301Additional paid-in capital
    
    
    55,130
    
    
    
    39,518Retained earnings
    
    
    21,573
    
    
    
    34,228Treasury stock, at cost; 282 and 9,275 shares in
2008 and 2007, respectively
    
    
    (7
    )
    
    
    (317
    )Accumulated other comprehensive (loss) income, net
    
    
    (4,097
    )
    
    
    28Total stockholders equity
    
    
    90,561
    
    
    
    89,758$
    1,378,130
    
    
    $
    1,212,980
   3




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
 
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest income:Loans, including fees
    
    $
    15,003
    
    
    $
    17,139
    
    
    $
    46,483
    
    
    $
    49,042Investment securities
    
    
    3,345
    
    
    
    3,016
    
    
    
    9,944
    
    
    
    8,548Federal funds sold
    
    
    188
    
    
    
    220
    
    
    
    375
    
    
    
    902Interest-bearing deposits in other banks
    
    
    7
    
    
    
    6
    
    
    
    18
    
    
    
    20Total interest income
    
    
    18,543
    
    
    
    20,381
    
    
    
    56,820
    
    
    
    58,512Interest expense:Deposits
    
    
    7,497
    
    
    
    8,688
    
    
    
    22,539
    
    
    
    24,346Federal funds purchased and securities sold
under repurchase agreements
    
    
    295
    
    
    
    830
    
    
    
    1,160
    
    
    
    2,499Other borrowings
    
    
    1,009
    
    
    
    1,127
    
    
    
    3,072
    
    
    
    3,391Total interest expense
    
    
    8,801
    
    
    
    10,645
    
    
    
    26,771
    
    
    
    30,236Net interest income
    
    
    9,742
    
    
    
    9,736
    
    
    
    30,049
    
    
    
    28,276Provision for loan losses
    
    
    2,073
    
    
    
    1,001
    
    
    
    4,996
    
    
    
    2,607Net interest income after provision
for loan losses
    
    
    7,669
    
    
    
    8,735
    
    
    
    25,053
    
    
    
    25,669Noninterest income:Service charges and fees on deposits
    
    
    1,955
    
    
    
    1,675
    
    
    
    5,446
    
    
    
    4,654Gain on sales of loans
    
    
    1,529
    
    
    
    1,350
    
    
    
    4,365
    
    
    
    3,954(Loss) gain on sale of fixed assets
    
    
    (1
    )
    
    
    1,095
    
    
    
    7
    
    
    
    1,032Investment securities gains (losses), net
    
    
    21
    
    
    
    (278
    )
    
    
    88
    
    
    
    (245
    )Retail investment income
    
    
    277
    
    
    
    296
    
    
    
    841
    
    
    
    894Trust service fees
    
    
    288
    
    
    
    271
    
    
    
    873
    
    
    
    830Increase in cash surrender value of
bank-owned life insurance
    
    
    190
    
    
    
    169
    
    
    
    548
    
    
    
    495Miscellaneous income
    
    
    178
    
    
    
    168
    
    
    
    652
    
    
    
    497Total noninterest income
    
    
    4,437
    
    
    
    4,746
    
    
    
    12,820
    
    
    
    12,111Noninterest expense:Salaries and other personnel expense
    
    
    5,202
    
    
    
    4,905
    
    
    
    15,755
    
    
    
    14,329Occupancy expenses
    
    
    1,122
    
    
    
    845
    
    
    
    3,153
    
    
    
    2,348Other operating expenses
    
    
    3,041
    
    
    
    2,558
    
    
    
    8,642
    
    
    
    6,985Total noninterest expense
    
    
    9,365
    
    
    
    8,308
    
    
    
    27,550
    
    
    
    23,662Income before income taxes
    
    
    2,741
    
    
    
    5,173
    
    
    
    10,323
    
    
    
    14,118Income tax expense
    
    
    866
    
    
    
    1,817
    
    
    
    3,405
    
    
    
    5,031Net income
    
    $
    1,875
    
    
    $
    3,356
    
    
    $
    6,918
    
    
    $
    9,087Basic net income per share
    
    $
    0.31
    
    
    $
    0.56
    
    
    $
    1.16
    
    
    $
    1.52Diluted net income per share
    
    $
    0.31
    
    
    $
    0.56
    
    
    $
    1.15
    
    
    $
    1.50Weighted average common shares outstanding
    
    
    5,976,883
    
    
    
    5,971,086
    
    
    
    5,967,310
    
    
    
    5,974,473Weighted average number of common and
common equivalent shares outstanding
    
    
    6,018,584
    
    
    
    6,042,428
    
    
    
    6,010,367
    
    
    
    6,048,633
   4




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
 
  Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    6,918
    
    
    $
    9,087Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    1,685
    
    
    
    1,114Deferred income tax benefit
    
    
    (1,003
    )
    
    
    Provision for loan losses
    
    
    4,996
    
    
    
    2,607Net investment securities (gains) losses
    
    
    (88
    )
    
    
    245Net accretion of discount on investment securities
    
    
    (133
    )
    
    
    (113
    )Increase in CSV of bank owned life insurance
    
    
    (548
    )
    
    
    (495
    )Stock options compensation cost
    
    
    155
    
    
    
    405Gain on disposal of premises and equipment
    
    
    (7
    )
    
    
    (1,032
    )Loss (gain) on the sale of other real estate
    
    
    4
    
    
    
    (3
    )Gain on sales of loans
    
    
    (4,365
    )
    
    
    (3,954
    )Real estate loans originated for sale
    
    
    (197,388
    )
    
    
    (198,634
    )Proceeds from sales of real estate loans
    
    
    197,869
    
    
    
    207,883Decrease (increase) in accrued interest receivable
    
    
    980
    
    
    
    (1,442
    )Increase in other assets
    
    
    (326
    )
    
    
    (305
    )Decrease in accrued interest payable and other liabilities
    
    
    (1,613
    )
    
    
    (1,271
    )Net cash provided by operating activities
    
    
    7,136
    
    
    
    14,092Cash flows from investing activities:Proceeds from sales of available for sale securities
    
    
    27,285
    
    
    
    8,310Proceeds from maturities of available for sale securities
    
    
    59,853
    
    
    
    35,248Proceeds from maturities of held to maturity securities
    
    
    765
    
    
    
    1,045Purchase of available for sale securities
    
    
    (89,165
    )
    
    
    (76,342
    )Purchase of restricted equity securities
    
    
    (1,535
    )
    
    
    (619
    )Proceeds from redemption of FHLB stock
    
    
    
    
    
    
    495Net increase in loans
    
    
    (117,943
    )
    
    
    (105,672
    )Additions to premises and equipment
    
    
    (4,841
    )
    
    
    (7,813
    )Proceeds from sale of other real estate
    
    
    482
    
    
    
    293Proceeds from sale of premises and equipment
    
    
    1,512
    
    
    
    2,994Net cash used in investing activities
    
    
    (123,587
    )
    
    
    (142,061
    )Cash flows from financing activities:Net increase in deposits
    
    
    173,618
    
    
    
    149,465Net decrease in federal funds purchased and
securities sold under repurchase
agreements
    
    
    (32,558
    )
    
    
    (8,065
    )Advances from Federal Home Loan Bank
    
    
    25,000
    
    
    
    10,000Payments of Federal Home Loan Bank advances
    
    
    
    
    
    
    (11,000
    )Principal payments on other borrowed funds
    
    
    (100
    )
    
    
    (100
    )Purchase of treasury stock
    
    
    (445
    )
    
    
    (290
    )Payment of cash dividends
    
    
    (2,186
    )
    
    
    (2,118
    )Proceeds from stock options exercised
    
    
    466
    
    
    
    Proceeds from Directors stock purchase plan
    
    
    25
    
    
    
    Cash paid for fractional shares
    
    
    (5
    )
    
    
    Net cash provided by financing activities
    
    
    163,815
    
    
    
    137,892Net increase in cash and cash equivalents
    
    $
    47,364
    
    
    $
    9,923Cash and cash equivalents at beginning of period
    
    
    25,058
    
    
    
    40,911Cash and cash equivalents at end of period
    
    $
    72,422
    
    
    $
    50,834Supplemental disclosures of cash paid during the period for:Interest
    
    $
    27,661
    
    
    $
    30,153Income taxes
    
    $
    5,190
    
    
    $
    6,444Supplemental information on noncash investing activities:Loans transferred to other real estate
    
    $
    863
    
    
    $
    341
   5




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SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARIES
 
         6




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Level 1:
    
    Quoted prices in active markets for identical assets or liabilities.Level 2:
    
    Significant other observable inputs other than level 1 prices, such as quoted
market prices for similar assets or liabilities, quoted prices in markets that are not active,
and other inputs that are observable or can be corroborated by
observable market data.Observable market based inputs or unobservable inputs that are corroborated by market
data.Level 3:
    
    Unobservable inputs that are not corroborated by market data.
  Securities:
   Impaired Loans
  7




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Investments in tax credits:
 Assets and Liabilities Measured on a Recurring Basis
  QuotedPrices inActiveMarkets for
    
    
    Significant Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Available-for-sale
securities
    
    $
    240,916
    
    
    $
    101
    
    
    $
    236,403
    
    
    $
    4,412Tax credits
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    534Held-to-maturity
securities
    
    
    698
    
    
    
    
    
    
    
    698
    
    
    
    Total
    
    $
    242,148
    
    
    $
    101
    
    
    $
    237,101
    
    
    $
    4,946
  
 Tax Credits, Jan. 1, 2008
    
    $
    594Total realized losses included in earnings
    
    
    (60
    )Tax Credits, September 30, 2008
    
    $
    534Available-for-sale securities
    
    $
    4,412Total
    
    $
    4,946
  8




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Assets and Liabilities Measured on a Non-Recurring Basis
  QuotedPrices inActiveMarkets for
    
    
    Significant  Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans
    
    
    18,011
    
    
    
    
    
    
    
    
    
    
    
    18,011
         9




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10




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11




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Item 2.

    Managements Discussion and Analysis of Financial Condition and
Results of Operations
  Overview
     12




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Table 1  Selected Financial Data
 September 30,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2003(Dollars in thousands)Assets
    
    $
    1,378,130
    
    
    $
    1,212,980
    
    
    $
    630,633Loans
    
    
    1,000,426
    
    
    
    882,743
    
    
    
    432,679Deposits
    
    
    1,125,785
    
    
    
    952,166
    
    
    
    483,952Annualized return on average total assets
    
    
    0.71
    %
    
    
    1.04
    %
    
    
    1.31
    %Annualized return on average equity
    
    
    10.39
    %
    
    
    14.03
    %
    
    
    15.62
    %
    13




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Forward-Looking Statements
  Critical Accounting Estimates
    14




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Performance Overview
    15




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Table 2  Selected Balance Sheet Data
 September 30,
    
    
    December 31,
    
    
    Variance2008
    
    
    2007
    
    
    Amount
    
    
    %(Dollars in thousands)Cash and due from banks
    
    $
    28,712
    
    
    $
    24,558
    
    
    $
    4,154
    
    
    
    16.9
    %Federal funds sold
    
    
    43,210
    
    
    
    
    
    
    
    43,210
    
    
    
    N/AInvestment securities
    
    
    241,605
    
    
    
    246,864
    
    
    
    (5,259
    )
    
    
    (2.1
    %)Loans
    
    
    1,000,426
    
    
    
    882,743
    
    
    
    117,683
    
    
    
    13.3
    %Assets
    
    
    1,378,130
    
    
    
    1,212,980
    
    
    
    165,150
    
    
    
    13.6
    %Deposits
    
    
    1,125,785
    
    
    
    952,166
    
    
    
    173,619
    
    
    
    18.2
    %Securities sold under repurchase agreements
    
    
    48,607
    
    
    
    81,166
    
    
    
    (32,559
    )
    
    
    (40.1
    %)Advances from Federal Home Loan Bank
    
    
    84,000
    
    
    
    59,000
    
    
    
    25,000
    
    
    
    42.4
    %Liabilities
    
    
    1,287,569
    
    
    
    1,123,222
    
    
    
    164,347
    
    
    
    14.6
    %Stockholders equity
    
    
    90,561
    
    
    
    89,758
    
    
    
    803
    
    
    
    0.9
    %
     16




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Net Interest Income
  Table 3  Average Balances, Income and Expenses, Yields and Rates
 Three Months Ended Sept. 30, 2008
    
    
    Three Months Ended Sept. 30, 2007Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    Yield or
    
    
    Amount Paid
    
    
    Average
    
    
    Yield or
    
    
    Amount PaidAmount
    
    
    Rate
    
    

or Earned
    
    
    Amount
    
    
    Rate
    
    

or Earned(Dollars in thousands)Interest-earning assets:Loans
    
    $
    968,298
    
    
    
    6.09
    %
    
    $
    15,003
    
    
    $
    826,787
    
    
    
    8.14
    %
    
    $
    17,139Investment securities
    
    
    248,398
    
    
    
    5.39
    %
    
    
    3,345
    
    
    
    230,660
    
    
    
    5.23
    %
    
    
    3,016Federal funds sold
    
    
    39,133
    
    
    
    1.91
    %
    
    
    188
    
    
    
    16,237
    
    
    
    5.38
    %
    
    
    220Interest-bearing deposits in other
banks
    
    
    500
    
    
    
    5.40
    %
    
    
    7
    
    
    
    500
    
    
    
    5.40
    %
    
    
    6Total interest-earning assets
    
    $
    1,256,329
    
    
    
    5.82
    %
    
    $
    18,543
    
    
    $
    1,074,184
    
    
    
    7.47
    %
    
    $
    20,381Interest-bearing liabilities:Deposits
    
    $
    962,011
    
    
    
    3.09
    %
    
    $
    7,497
    
    
    $
    803,509
    
    
    
    4.29
    %
    
    $
    8,688Federal funds purchased / securities
sold under repurchase agreements
    
    
    59,266
    
    
    
    1.97
    %
    
    
    295
    
    
    
    63,581
    
    
    
    5.18
    %
    
    
    830Other borrowings
    
    
    104,171
    
    
    
    3.84
    %
    
    
    1,009
    
    
    
    78,618
    
    
    
    5.69
    %
    
    
    1,127Total interest-bearing liabilities
    
    $
    1,125,448
    
    
    
    3.10
    %
    
    $
    8,801
    
    
    $
    945,708
    
    
    
    4.47
    %
    
    $
    10,645Net interest margin/income:
    
    
    
    
    
    
    3.04
    %
    
    $
    9,742
    
    
    
    
    
    
    
    3.54
    %
    
    $
    9,736
  17




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Table 4  Average Balances, Income and Expenses, Yields and Rates
 Nine Months Ended Sept. 30, 2008
    
    
    Nine Months Ended Sept. 30, 2007Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAverage
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    Yield or
    
    
    Amount Paid
    
    
    Average
    
    
    Yield or
    
    
    Amount PaidAmount
    
    
    Rate
    
    

or
Earned
    
    
    Amount
    
    
    Rate
    
    

or
Earned(Dollars in thousands)Interest-earning assets:Loans
    
    $
    937,175
    
    
    
    6.54
    %
    
    $
    46,483
    
    
    $
    793,660
    
    
    
    8.18
    %
    
    $
    49,042Investment securities
    
    
    249,490
    
    
    
    5.31
    %
    
    
    9,944
    
    
    
    221,027
    
    
    
    5.16
    %
    
    
    8,548Federal funds sold
    
    
    24,632
    
    
    
    2.03
    %
    
    
    375
    
    
    
    22,802
    
    
    
    5.29
    %
    
    
    902Interest-bearing deposits in other
banks
    
    
    500
    
    
    
    5.00
    %
    
    
    18
    
    
    
    508
    
    
    
    5.31
    %
    
    
    20Total interest-earning assets
    
    $
    1,211,797
    
    
    
    6.20
    %
    
    $
    56,820
    
    
    $
    1,037,997
    
    
    
    7.47
    %
    
    $
    58,512Interest-bearing liabilities:Deposits
    
    $
    918,478
    
    
    
    3.27
    %
    
    $
    22,539
    
    
    $
    764,128
    
    
    
    4.26
    %
    
    $
    24,346Federal funds purchased / securities
sold under repurchase agreements
    
    
    62,043
    
    
    
    2.49
    %
    
    
    1,160
    
    
    
    63,889
    
    
    
    5.23
    %
    
    
    2,499Other borrowings
    
    
    96,969
    
    
    
    4.22
    %
    
    
    3,072
    
    
    
    79,223
    
    
    
    5.72
    %
    
    
    3,391Total interest-bearing liabilities
    
    $
    1,077,490
    
    
    
    3.31
    %
    
    $
    26,771
    
    
    $
    907,240
    
    
    
    4.46
    %
    
    $
    30,236Net interest margin/income:
    
    
    
    
    
    
    3.25
    %
    
    $
    30,049
    
    
    
    
    
    
    
    3.57
    %
    
    $
    28,276
    18




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##### Table of Contents



Noninterest Income
 Table 5  Noninterest Income
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2008
    
    
    2007
    
    
    Amount
    
    
    %
    
    
    2008
    
    
    2007
    
    
    Amount
    
    
    %(Dollars in thousands)
    
    
    (Dollars in thousands)Service charges and
fees
on deposits
    
    $
    1,955
    
    
    $
    1,675
    
    
    $
    280
    
    
    
    16.7
    %
    
    $
    5,446
    
    
    $
    4,654
    
    
    $
    792
    
    
    
    17.0
    %Gain on sales of loans
    
    
    1,529
    
    
    
    1,350
    
    
    
    179
    
    
    
    13.3
    %
    
    
    4,365
    
    
    
    3,954
    
    
    
    411
    
    
    
    10.4
    %Gain on sale of fixed
assets
    
    
    (1
    )
    
    
    1,095
    
    
    
    (1,096
    )
    
    
    (100.1
    %)
    
    
    7
    
    
    
    1,032
    
    
    
    (1,025
    )
    
    
    (99.3
    %)Investment securities
gains (losses), net
    
    
    21
    
    
    
    (278
    )
    
    
    299
    
    
    
    (107.6
    %)
    
    
    88
    
    
    
    (245
    )
    
    
    333
    
    
    
    (135.9
    %)Retail investment
income
    
    
    277
    
    
    
    296
    
    
    
    (19
    )
    
    
    (6.4
    %)
    
    
    841
    
    
    
    894
    
    
    
    (53
    )
    
    
    (5.9
    %)Trust services fees
    
    
    288
    
    
    
    271
    
    
    
    17
    
    
    
    6.3
    %
    
    
    873
    
    
    
    830
    
    
    
    43
    
    
    
    5.2
    %Increase in cash
surrender
value of bank-owned
life insurance
    
    
    190
    
    
    
    169
    
    
    
    21
    
    
    
    12.4
    %
    
    
    548
    
    
    
    495
    
    
    
    53
    
    
    
    10.7
    %Miscellaneous income
    
    
    178
    
    
    
    168
    
    
    
    10
    
    
    
    6.0
    %
    
    
    652
    
    
    
    497
    
    
    
    155
    
    
    
    31.2
    %Total noninterest
income
    
    $
    4,437
    
    
    $
    4,746
    
    
    $
    (309
    )
    
    
    (6.5
    %)
    
    $
    12,820
    
    
    $
    12,111
    
    
    $
    709
    
    
    
    5.9
    %
   19




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##### Table of Contents



Noninterest Expense
 Table 6  Noninterest Expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2008
    
    
    2007
    
    
    Amount
    
    
    %
    
    
    2008
    
    
    2007
    
    
    Amount
    
    
    %(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and other
personnel expense
    
    $
    5,202
    
    
    $
    4,905
    
    
    $
    297
    
    
    
    6.1
    %
    
    $
    15,755
    
    
    $
    14,329
    
    
    $
    1,426
    
    
    
    10.0
    %Occupancy expenses
    
    
    1,122
    
    
    
    845
    
    
    
    277
    
    
    
    32.8
    %
    
    
    3,153
    
    
    
    2,348
    
    
    
    805
    
    
    
    34.3
    %Other operating
expenses
    
    
    3,041
    
    
    
    2,558
    
    
    
    483
    
    
    
    18.9
    %
    
    
    8,642
    
    
    
    6,985
    
    
    
    1,657
    
    
    
    23.7
    %Total noninterest
expense
    
    $
    9,365
    
    
    $
    8,308
    
    
    $
    1,057
    
    
    
    12.7
    %
    
    $
    27,550
    
    
    $
    23,662
    
    
    $
    3,888
    
    
    
    16.4
    %
  Salaries and other personnel expenses:
  Occupancy expenses:
  Other operating expenses:
   20




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##### Table of Contents



Income Taxes
  Asset Quality
     21




---



##### Table of Contents



Table 7  Non-Performing Assets
(Dollars in thousands)
 September 30, 2008
    
    
    December 31, 2007
    
    
    September 30, 2007Nonaccrual loans
    
    $
    37,905
    
    
    $
    5,495
    
    
    $
    2,529Other real estate owned
    
    
    377
    
    
    
    
    
    
    
    50Total non-performing assets
    
    $
    38,282
    
    
    $
    5,495
    
    
    $
    2,579Loans past due 90 days or more
and still accruing interest
    
    $
    
    
    
    $
    
    
    
    $
    Non-performing assets to total assets
    
    
    2.78
    %
    
    
    0.45
    %
    
    
    0.22
    %Non-performing assets to total loans and ORE
    
    
    3.82
    %
    
    
    0.62
    %
    
    
    0.30
    %Allowance for loan loss to total
non-performing assets
    
    
    35.33
    %
    
    
    214.74
    %
    
    
    457.74
    %
 Allowance for Loan Losses
    22




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##### Table of Contents



Table 8  Loan Portfolio Composition
 September 30, 2008
    
    
    December 31, 2007Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Commercial financial and
agricultural
    
    $
    107,122
    
    
    
    10.71
    %
    
    $
    93,318
    
    
    
    10.57
    %Real estateCommercial
    
    
    273,564
    
    
    
    27.34
    %
    
    
    236,358
    
    
    
    26.78
    %Residential
    
    
    208,587
    
    
    
    20.85
    %
    
    
    190,613
    
    
    
    21.59
    %Residential held for sale
    
    
    15,187
    
    
    
    1.52
    %
    
    
    11,303
    
    
    
    1.28
    %Construction and
development
    
    
    365,944
    
    
    
    36.58
    %
    
    
    318,438
    
    
    
    36.07
    %Total real estate
    
    
    863,282
    
    
    
    86.29
    %
    
    
    756,712
    
    
    
    85.72
    %Lease financing
    
    
    34
    
    
    
    0.00
    %
    
    
    37
    
    
    
    0.00
    %ConsumerDirect
    
    
    24,644
    
    
    
    2.46
    %
    
    
    25,569
    
    
    
    2.90
    %Indirect
    
    
    3,515
    
    
    
    0.35
    %
    
    
    4,237
    
    
    
    0.48
    %Revolving
    
    
    2,403
    
    
    
    0.24
    %
    
    
    3,819
    
    
    
    0.43
    %Total consumer
    
    
    30,562
    
    
    
    3.05
    %
    
    
    33,625
    
    
    
    3.81
    %Deferred loan origination fees
    
    
    (574
    )
    
    
    -0.06
    %
    
    
    (949
    )
    
    
    -0.11
    %Total
    
    
    1,000,426
    
    
    
    100.00
    %
    
    $
    882,743
    
    
    
    100.00
    %
    23




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##### Table of Contents



Table 9  Allowance for Loan Losses
(Dollars in thousands)
 2008
    
    
    2007Beginning balance, January 1
    
    $
    11,800
    
    
    $
    9,777Provision charged to expense
    
    
    4,996
    
    
    
    2,607Recoveries
    
    
    528
    
    
    
    596Loans charged off
    
    
    (3,808
    )
    
    
    (1,175
    )Ending balance, September 30
    
    $
    13,516
    
    
    $
    11,805Allowance for loan loss to total loans
    
    
    1.35
    %
    
    
    1.39
    %
  24




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##### Table of Contents



Liquidity and Capital Resources
    25




---



##### Table of Contents



Table 10  Regulatory Capital Requirements
September 30, 2008  (Dollars in Thousands)
 Required for capitalActual
    
    
    adequacy purposes
    
    
    ExcessAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentSoutheastern Bank
Financial
CorporationRisk-based capital:Tier 1 capital
    
    $
    114,369
    
    
    
    10.42
    %
    
    
    43,890
    
    
    
    4.00
    %
    
    
    70,479
    
    
    
    6.42
    %Total capital
    
    
    127,886
    
    
    
    11.66
    %
    
    
    87,780
    
    
    
    8.00
    %
    
    
    40,106
    
    
    
    3.66
    %Tier 1 leverage ratio
    
    
    114,369
    
    
    
    8.54
    %
    
    
    53,561
    
    
    
    4.00
    %
    
    
    60,808
    
    
    
    4.54
    %Georgia Bank & Trust
CompanyRisk-based capital:Tier 1 capital
    
    $
    95,286
    
    
    
    9.66
    %
    
    
    39,449
    
    
    
    4.00
    %
    
    
    55,837
    
    
    
    5.66
    %Total capital
    
    
    107,280
    
    
    
    10.88
    %
    
    
    78,897
    
    
    
    8.00
    %
    
    
    28,383
    
    
    
    2.88
    %Tier 1 leverage ratio
    
    
    95,286
    
    
    
    7.83
    %
    
    
    54,785
    
    
    
    4.50
    %
    
    
    40,501
    
    
    
    3.33
    %Southern Bank & TrustRisk-based capital:Tier 1 capital
    
    $
    13,943
    
    
    
    12.33
    %
    
    
    4,522
    
    
    
    4.00
    %
    
    
    9,421
    
    
    
    8.33
    %Total capital
    
    
    15,358
    
    
    
    13.58
    %
    
    
    9,045
    
    
    
    8.00
    %
    
    
    6,313
    
    
    
    5.58
    %Tier 1 leverage ratio
    
    
    13,943
    
    
    
    11.69
    %
    
    
    4,772
    
    
    
    4.00
    %
    
    
    9,171
    
    
    
    7.69
    %
   Commitments and Contractual Obligations
   26




---



##### Table of Contents



Table 11  Commitments and Contractual Obligations
 Less than
    
    
    
    
    
    
    
    
    
    
    More than($ in thousands)
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsLines of credit
    
    $
    198,252
    
    
    
    
    
    
    
    
    
    
    
    Lease agreements
    
    
    339
    
    
    
    605
    
    
    
    233
    
    
    
    105Deposits
    
    
    1,017,994
    
    
    
    101,563
    
    
    
    6,228
    
    
    
    Securities sold under
repurchase agreements
    
    
    48,607
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    32,000
    
    
    
    32,000
    
    
    
    
    
    
    
    20,000Other borrowings
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    Total commitments and
contractual
obligations
    
    $
    1,297,592
    
    
    $
    134,168
    
    
    $
    6,461
    
    
    $
    20,105
  Effects of Inflation and Changing Prices
   27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   28




---



##### Table of Contents



Part II
OTHER INFORMATION
 
 Item 1.
    
    Legal ProceedingsThere are no material pending legal proceedings to which the Company or any of its
subsidiaries is a party or of which any of their property is subject.
 
 Item 1A.
    
    Risk FactorsIn addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A. Risk Factors in the Companys
Annual Report on Form 10-K for the year ended December 31, 2007, which could
materially affect its business, financial condition or future results. The risks
described in the Annual Report on Form 10-K are not the only risks facing the
Company. Additional risks and uncertainties not currently known to management or
that management currently deems to be immaterial also may materially adversely
affect the Companys business, financial condition and/or operating results.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsIssuer Purchases of Equity SecuritiesThe following table sets forth information regarding the Companys purchases of its
common stock on a monthly basis during the third quarter of 2008. All of the 282
shares repurchased during the third quarter were privately negotiated.
 Total Number of
    
    
    Maximum Number (orShares (or Units)
    
    
    Appropriate Dollar Value)Total Number
    
    
    Average Price
    
    
    Purchased as Part of
    
    
    of Shares (or Units) Yet Toof Shares
    
    
    Paid Per
    
    
    Publicly Announced
    
    
    Be Purchased Under thePeriod
    
    Purchased
    
    
    Share
    
    
    Plans or Programs
    
    
    Plans or ProgramsJuly 1 through
July 31, 2008
    
    
    
    
    
    
    
    
    
    
    25,549
    
    
    
    74,451August 1 through
August 31, 2008
    
    
    
    
    
    
    
    
    
    
    25,549
    
    
    
    74,451September 1 through
September 30, 2008
    
    
    282
    
    
    
    26.00
    
    
    
    25,831
    
    
    
    74,169Total
    
    
    282
    
    
    $
    26.00
    
    
    
    25,831
    
    
    
    74,169
 On April 15, 2004, the Company announced the commencement of a stock repurchase
program, pursuant to which it will, from time to time, repurchase up to 100,000
shares of its outstanding stock. The program does not have a stated expiration
date. No stock repurchase programs were terminated during the third quarter of
2008.
  29




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##### Table of Contents



Item 3.
    
    Defaults Upon Senior SecuritiesNot applicable
 
 Item 4.
    
    Submission of Matters to a Vote of Security HoldersNone
 
 Item 5.
    
    Other InformationNone
 
 Item 6.
    
    Exhibits
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  30




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##### Table of Contents



SOUTHEASTERN BANK FINANCIAL CORPORATIONDate: November 10, 2008
    By:
    /s/ Darrell R. RainsDarrell R. RainsGroup Vice President, Chief
Financial Officer (Duly Authorized
Officer of Registrant and Principal
Financial Officer)  31




---



##### Table of Contents



Exhibit No.
    
    Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
  32